Monday, August 8, 2016

Struggling To Stabilize: 3Rs Litigation And The Future Of The ACA Exchanges

By Mike Adelberg and Nicholas Bagley

Six years after passage of the Affordable Care Act (ACA), the individual and small-group insurance markets — the markets that the ACA remade — are still having growing pains. Health insurers have endured large losses and a number of ACA-created co-ops and other small insurers have failed. Consolidation among providers and insurers is an increasing and concerning trend. And many insurers are poised to raise premiums substantially for 2017, further stoking frustration with the insurance industry.

Part of insurers' difficulty is that the risk pool in the individual and small-group markets, particularly on the exchanges, is sicker and smaller than originally projected. But the three programs — reinsurance, risk corridors, and risk adjustment — that the ACA's drafters hoped would help stabilize premiums in the revamped markets have also not performed as expected. Dashed expectations have led to market instability and to a flurry of lawsuits around the "3Rs."

But make no mistake about it: trouble with the 3Rs has spooked insurers and raised questions about the viability of the ACA-reformed markets. Based on preliminary analyses, the 2017 exchanges will have fewer options, larger premium increases, and less generous benefits than any year since the ACA marketplaces came on line in 2014. Congressional intervention has damaged the ACA markets — hurting both insurers that sell health plans and the consumers who purchase them. Perhaps the exchanges will find their footing again, but the difficulties with the 3Rs serve as a stark reminder that ACA implementation remains much harder than supporters anticipated.

The Affordable Care Act was intended to usher in a new era of competition and choice in health insurance, and at first it succeeded. But increasingly, provisions in the law are undermining competition and wiping out start-up after start-up. If something isn't done soon, the vast majority of new insurers formed in the wake of the ACA will fail, and many old-line insurers that took the opportunity to expand and compete in the new markets will leave.

Risk adjustment requires an insurer to report on the health risk of its members, and to do that it needs good data. Plans that played the game better from the start set a high priority on collecting and reporting on that information. However, it is much harder to get good data if a member just joined than if you have had that member enrolled prior to the ACA exchanges and can mine your data warehouse for all those ICD codes that boost the risk score. The dominant pre-ACA players had more years of member data, and mature analytics capabilities, to help them maximize their risk scoring. This has created a serious penalty for new entrants in the first few years which CMS has not addressed.

The 3Rs - reinsurance, risk corridors, and risk adjustment - were designed to stabilize the ACA insurance exchanges, but we're seeing market instability instead. Next year, only risk adjustment remains, and the insurers have demonstrated to us that they know how to game the system.

Considering that the exchanges insure less than four percent of our population, you might think that we would be ready to abandon this failed experiment and move on. But, no. The powers that be know that pressure will be on to enact their dreaded single payer system, so they struggle on. Far be it from us to enact a system that would actually achieve the goals of reform.